Axiata has confirmed that it has agreed a deal to acquire the Indonesian operator Axis, having struck a “conditional sale and purchase agreement” with Axis’ current owner STC.

The resulting entity will be the second-largest player in the country.

The Indonesian arm of Axiata – branded as XL Axiata – will acquire a 95% holding in Axis, which under the agreement was valued at $865 million on a cash-free and debt-free basis. Approval from both the regulator and company shareholders is required for the deal to close.

These financial difficulties were acknowledged by Axiata, which stated that “the purchase consideration will be utilised towards payment of a nominal value for Axis equity and redemption of Axis indebtedness”. According to Bloomberg, Axiata will pay just $100 in cash for Axis’ share capital – the rest of the payment will go towards reducing debt.

XL Axiata is currently the third-largest player in Indonesia with 54.2 million subscribers. It is narrowly beaten by Ooredoo subsidiary Indosat, which had 56.5 million, but both significantly tail the market leader Telkomsel, which has 125.1 million subscribers.

Adding Axis’ 16.9 million connections to Axiata’s base would catapult the combined entity into second place. According to Axiata, the deal “consolidates the industry further and paves the way for more prudent, growth-focused expansion with a more efficient capex profile”.

In addition, the number three operator noted that with the additional spectrum that it would acquire via Axis, it could offer “significantly enhanced quality of service and network experience on both 2G and 3G” as well as “enhanced asset utilisation, particularly on XL’s towers and network equipment, with tangible reduction in capex and opex spends”.

The group’s CEO Dato’ Sri Jamaludin Ibrahim stated: “We are a long term investor and the acquisition is in line with our strategy of continued investment in every country we operate in and supporting in-market consolidation where it benefits all parties.”

“We are confident we can successfully execute the integration as we did with Hello and Smart in Cambodia as well as Suntel and Dialog in Sri Lanka. Both acquisitions saw smooth and successful integration both strategically and financially,” he added.